Rerating for LTIMindtree hinges on revenue rampup and margin uptick

LTIMindtree (LTIM) reported revenue for the fourth quarter of financial year 2024-25 (Q4FY25) at ~9,770 crore, which was down 0.6 per cent on a sequential basis and in constant currency terms. Margins at the operating level were flat sequentially at 13.8 per cent.

 

Reported deal-booking stood at $1.6 billion versus $1.68 billion in Q3FY25. The headcount fell by 2,493, bringing the total to 84,307 employees. Attrition increased by 10 basis points (bps) quarter-on-quarter (Q-o-Q) to 14.40 per cent while utilisation increased by 40 bps Q-o-Q to 85.8 per cent.

 

LTIM hired 4,700 freshers in FY25. Management intends to use fresher additions to correct the employee pyramid. Management noted that going forward, headcount may increase slower than revenue as artificial intelligence (AI)-led productivity starts to play out.

 

The company added 26 new clients in Q4 (23 in Q3). Segment-wise, in dollar terms, revenue from banking, financial services and insurance (BFSI) was up 1.2 per cent Q-o-Q; manufacturing was up 2.3 per cent Q-o-Q while tech, media & communications was down 1.5 per cent Q-o-Q; consumer business sales were down 2.4 per cent Q-o-Q; and healthcare, life sciences and public services revenues fell by 14 per cent Q-o-Q.

 

Client-spending is currently focused on cost optimisation, vendor consolidation and AI-driven modernisation. The “Fit for Future” cost-restructuring programme will expand margin from Q1FY26, supported by higher utilisation and AI-enabled productivity gains.

 

The healthy order inflow offers revenue visibility. Management expects to sustain topline momentum into Q1FY26 despite macro uncertainty, which may delay some rampups.

 

Large-scale AI-driven engagements may drive revenue growth.

 

Management transition is in progress and the chief executive officer (CEO)-designate, Venugopal Lambu, shared three key pillars of his strategy. These include sales transformation, which will involve simplifying service-line sales structure, strengthening of leadership in high potential businesses, and exploring new sales models in the AI economy.

 

Two, revamp large-deal organization, which will entail a focus on proactive integration of new-age technologies in clients’ IT systems as well as LTIM's service delivery models. Nachiket Deshpande (erstwhile COO) will be the head of AI sales and strategic partnership.

 

Finally, “Fit for Future” will mean realigning operational costs by targeting productivity improvement in all areas. The benefits of the margin improvement will be seen from Q1FY26 onwards.

 

While management indicated margin improvement and revenue growth from Q1FY26 onwards, a sharp improvement in margin needs very strong revenue growth. This may be hard to achieve.

 

The ongoing AI-led tech transition is creating new opportunities. Client priorities in the BFSI vertical revolve around regulatory commitments and data transformation for better reporting and decisions. LTIM closed several large deals in the BFSI vertical in Q4FY25.

 

The company noted that its pipeline continues to be strong, with two large deals likely to be announced in Q1FY26 in the retail vertical. Management expects sequential revenue growth in Q1 as deals signed in the last two quarters may ramp up.

 

Management expects margins to improve in Q1 to some extent due to cost-optimisation.

 

The progressive induction of AI within the company as well as the client base is a positive. LTIM has been able to win deals despite the macro uncertainty but rampup has been delayed. The employee pyramid correction should ease costs on this front going forward.

 

However, margin improvement will be gradual and brokerage valuations (price to earnings) have a wide range of between 22 and 29, and some analysts have cut earnings per share estimates.